Abstract : An all-optical-fiber Faraday effect sensor system and method are provided for detecting electric current. The sensor system includes a source for providing an input beam of frequency-modulated linearly-polarized light and, a polarization modulator for converting the input beam of frequency-modulated light into polarization-modulated light. A Faraday rotation current sensor passes the polarization-modulated light through a magnetic field generated by an electric current to be measured. The lines of force of the magnetic field are generally parallel to the direction of propagation of the polarization modulated light. A detector and signal processing is used to derive an electrical heterodyne carrier signal which is phase modulated by the electric current. Detection of the phase of this carrier is used to determine the magnitude of the electric current.